Read the Case and Answer Question 1 Below in 5 or more sentences:

Ethics Program Background Martin Mariettas formal ethics program was one facet of an effort to create and maintain a do-it- right climate at a time when the defense industry was facing serious attacks from the government and the public for fraud and mismanagement. The immediate catalyst for the program was a failure to credit an overhead account on a government contract, but the idea had been in the air for some time. Jacques Croom, associate general counsel, first suggested a formal code of ethics in 1983, but for many years he had been a vocal advocate for integrity and fair play. With the federal governments campaign against defense industry fraud, waste, and abuse in the early 1980s, the companys campaign for integrity and fairness took on a new seriousness. By mid-1983, Crooms Hellfire and Brimstone speech, initially developed in the late 1970s, had become a standard opening to a variety of training programs. He told people: There are a lot of reasons to be good. And Im sure youve all got your own. But I want to give you one more reason. If you fall off that path, you could go to jail. Youll be terminated from this company and youll lose your security clearance. That means you wont be able to turn around and go over to a competitor. You may also be involved in a civil suit by the company. So dont claim you were helping us out of a difficult spot. You are not doing the company or yourself a favor by cutting corners. Well stand behind you if you make an innocent mistake. But if you deliberately violate the law, you wont get support, and I, personally, will probably turn you in to the authorities. Some managers were critical of Crooms approach, but Croom argued that there were some things people should be afraid ofprosecutors, the FBI, and auditors, for example. And he thought people should know what could happen to them if they did something wrong. The guy who does things ethically doesnt have to worry, he told his critics. We want employees to know and practice a simple philosophy that there is no substitute for doing what is right. He reminded cynics and skeptics that You may get away with dishonesty all your life, but all it takes is getting caught once. In 1984, shortly after Croom suggested a code of ethics, Martin Marietta found itself under investigation for improper travel billings in a small, wholly owned subsidiary. Evidence of wrongdoing could expose the company to suspension from defense contracting. A conviction could lead to debarmenta prohibition on business with the government for a specified period of time. Martin Mariettas president decided that the time had come for a companywide ethics program. About the same time, Frank Menaker, Martin Mariettas general counsel, began to argue for an aggressive approach to compliance. He advocated an ethics office and code of conduct. He also launched an internal investigation of the alleged travel incident. Croom was given the task of drafting a code. During four months of work, he reflected on his 17 years at Martin Marietta, on what the company stood for, and how it felt about its people and the communities in which it was involved. Croom wanted a code that employees could use both as a guide and as a protective shield. A draft was circulated among top management. As the program began to take shape, some managers were put off by what they saw as an implication that they were unethical and needed to be reformed. Marketers feared the code would limit their ability to get information and put them at a competitive disadvantage. Nevertheless, in September 1985, Martin Mariettas board of directors approved the proposed Code of Ethics and Standards of Conduct, and authorized the establishment of a corporate ethics office. The audit committee of the board was renamed the audit and ethics committee, and the ethics steering committee was appointed to implement and guide the ethics program. At about the same time, the head of corporate internal audit was directed to begin reporting to the chairman and CEO to enhance senior management attention to key audit issues. With these changes, the company created the basic infrastructure for its ethics program (Exhibit 2). The following month, a copy of the 12-page code, laying out the companys guiding principles, key constituencies, and basic standards of conduct, was sent to Martin Mariettas 60,000 employees at their homes. The code covered topics such as conflicts of interest, accurate books and records, gifts and entertainment, insider trading, antitrust law, and political contributions. It prohibited payments to secure business abroad. Each employee was required to return an acknowledgement card certifying receipt of the code. During the same period, ethics was made an explicit requirement of eligibility for awards under the incentive plan for corporate executives. The code was later supplemented by a publication providing examples to help employees interpret the standards of conduct and make decisions in the gray areas. Providing Ethics Education Education was another key dimension of the program. For Tom Young, corporate president and head of the ethics steering committee, it was the most important part. Thats where you can reach the people who want to do the right thing, but who may not know what it is. Its also the way to combat any excessive risk aversion people might feel as a result of not knowing what is acceptable. Changing standards and laws, as well as employee turnover and promotion, necessitated constant attention to training and the periodic updating of the code. The late 1980s had seen changes in what was considered appropriate in entertaining customers, in negotiating strategy, and in competitor information gathering. As one executive explained, What was once considered shrewd business in corporate America is no longer considered acceptable. In the old days, youd put your best foot forward and try to negotiate the best deal. Youd put in contingencies that you could negotiate out. Today, that is defective pricing or false claims, and its against the law. Between 1986 and 1988, the company conducted an initial round of training for the entire work force. The objective was to communicate an understanding of the code, heighten employee sensitivity to ethical problems, and demonstrate management commitment. By late 1989, the ethics training subcommittee was recommending the second round, for which Young favored a change from open- ended discussions of problems and dilemmas to a format with greater closure. Augustine emphasized the importance of including hard cases in which the problem was not so much choosing right versus wrong, as it was choosing among or balancing conflicting responsibilitiesto the customer, to employees, to the community, and to the shareholders. The second round of training included a five-hour program for company presidents and their staffs covering the ethics programs results, discussion of challenging ethical questions and cases, review of relevant legal issues, and DII matters. A shorter seminar was provided for program directors and staff with significant customer contact as well as all new business personnel, especially those in marketing, contracts, and finance. Employees who had significant contact with the customer or with competitors attended a two-hour session on ethics in marketing. A 50-minute session was presented for all remaining personnel. Attendance at the training programs was compulsory. Ethics awareness training was complemented by specific training in compliance with the laws and regulations governing substantive areas such as cost and labor charging or cost accounting standards. Integrating the Program into the Organization The ethics program provided employees with an umbrella of protection and an avenue of inquiry which they had not previously had. Issues raised with the ethics office went far beyond compliance with the law and the code of conduct. Employees raised questions about corporate decisions to lay people off and corporate policy on contributions to Political Action Committees. Employees unhappy with their supervisors directives sometimes looked to the ethics office for support and relief. Not everyone was comfortable with the new channels of employee assistance. Some plant managers and first-line supervisors felt the program undermined their authority, while some human resources managers felt the program was defined too broadly. Vice president for human resources and steering committee member Bobby Leonard, for example, felt that only cases involving wrongdoing, such as discrimination or favoritism on the part of the supervisor, should go into the ethics channels. Sammet and others who favored a more expansive definition of ethics thought the program should respond to whatever employees perceived as ethical concerns. And, indeed, many employees saw their complaints in terms of fairness. Young commented, Since our standard says people will be treated fairly, we have to take these complaints seriously. Corporate counsel stressed the importance of answering peoples questionshowever categorized. We dont want to turn anyone away, and besides, they have other avenuesthe news media, the FBI, a federal grand jury. Nevertheless, explained Reid, The ethics office was not intended as a forum where regular supervisory directions were questioned. The ethics office worked closely with the human resources function. Most personnel cases received in the ethics office were routed back to human resources channels for investigation. Human resources had responsibility for deciding on and implementing discipline and was responsible to the ethics office for delivering the companys ethics training. This procedure prompted human resources to take a close look at the companys disciplinary policies to ensure consistency in the penalties imposed for various kinds of misconduct. The presence of the ethics program was felt in other areas, too. Phil Giaramita, vice president of public affairs and ethics steering committee member, explained that the companys ethical standards had to be reflected in all its activities, including media relations. Giaramita made a point of being aggressive in getting to journalists, sometimes calling them with bad news. By getting the facts out early, he thought the company built credibility. If you are going to stand for honesty, integrity, and candor, you cant be honest just when it suits you. These qualities have to be apparent to the average employee who often gets company news from the press. Failure to be honest, open, and candid would dramatically undermine the program.

1. Identify the problem(s)/root causes